Each block must refer to the preceding block to be valid. This structure permanently time-stamps and stores exchanges of value, preventing anyone from altering the ledger. If you wanted to steal a bitcoin, you’d have to rewrite the coin’s entire history on the blockchain in broad daylight. That’s practically impossible. So the blockchain is a distributed ledger representing a network consensus of every transaction that has ever occurred. Like the World Wide Web of information, it’s the World Wide Ledger of value—a distributed ledger that everyone can download and run on their personal computer.
Some scholars have argued that the invention of double-entry bookkeeping enabled the rise of capitalism and the nation-state. This new digital ledger of economic transactions can be programmed to record virtually everything of value and importance to humankind: birth and death certificates, marriage licenses, deeds and titles of ownership, educational degrees, financial accounts, medical procedures, insurance claims, votes, provenance of food, and anything else that can be expressed in code.

This has never happened before—trusted transactions directly between two or more parties, authenticated by mass collaboration and powered by collective self-interests, rather than by large corporations motivated by profit.
It may not be the Almighty, but a trustworthy global platform for our transactions is something very big. We’re calling it the Trust Protocol.
This protocol is the foundation of a growing number of global distributed ledgers called blockchains—of which the bitcoin blockchain is the largest. While the technology is complicated and the word blockchain isn’t exactly sonorous, the main idea is simple. Blockchains enable us to send money directly and safely from me to you, without going through a bank, a credit card company, or PayPal.
Rather than the Internet of Information, it’s the Internet of Value or of Money.

Programs written in Smart Contract Language get compiled into the Virtual Machine, and to create the contracts you send the transaction containing your code.
Historical Record
Transactions are actually recorded in sequential data blocks (hence the word blockchain), so there is a historical, append-only log of these transactions that is continuously maintained and updated. A fallacy is that the blockchain is a distributed ledger. In the technical sense, it is not, but it acts as one, because the collection of transactions on blocks is equivalent to a distributed ledger. However, you can build immutable distributed ledger applications based on the historical records that the blockchain provides.
State Balances
Bitcoin was not designed around accounts, although accounts are a more common way to think about the transactions that are taking place, because we are used to looking at our banking transactions as such.

…

With Satoshi’s abstract still in your mind, let us dive deeper with three different but complementary definitions of the blockchain: a technical, business, and legal one.
Technically, the blockchain is a back-end database that maintains a distributed ledger that can be inspected openly.
Business-wise, the blockchain is an exchange network for moving transactions, value, assets between peers, without the assistance of intermediaries.
Legally speaking, the blockchain validates transactions, replacing previously trusted entities.
TECHNICAL Back-end database that maintains a distributed ledger, openly.
BUSINESS Exchange network for moving value between peers.
LEGAL A transaction validation mechanism, not requiring intermediary assistance.
Blockchain Capabilities = Technical + Business + Legal.
THE WEB, ALL OVER AGAIN
The past is not an accurate compass to the future, but understanding where we came from helps us gain an enlightened perspective and a better context for where we are going.

…

We could think of the traditional holders of central trust as today's guilds, and we could question why they should continue holding that trust, if technology (the blockchain) performed that function as well or even better.
Blockchains liberate the trust function from outside existing boundaries, in the same way as medieval institutions were forced to cede control of printing.
It is deceptive to view the blockchain primarily as a distributed ledger, because it represents only one of its many dimensions. It's like describing the Internet as a network only, or as just a publishing platform. These are necessary but not sufficient conditions or properties; blockchains are also greater than the sum of their parts.
Blockchain proponents believe that trust should be free, and not in the hands of central forces that tax it, or control it in one form or another (e.g., fees, access rights, or permissions).

The R3 Consortium
is a partnership with over 50 of the world's leading financial institutions (including all
the TBTF banks) who are working together, and independently, to create “distributed
ledger technologies” for the modern financial market. Banks have realized that if
they are to gain the benefits of this technology, then it is imperative that common
standards and shared platforms be established. Corda is the underlying distributed
ledger software which functions as a universal platform.
It is important to state the distinction between the term “Distributed Ledger
Technology (DLT)” and Blockchain. Distributed ledgers and cryptocurrency systems
are different in the way transactions are validated: While Bitcoin uses pseudonymous
and anonymous nodes to validate transactions, distributed ledgers require legal
identities (permissioned nodes) to validate transactions (Swanson, 2015).

…

This aspect of regulation in a digital environment was admirably and succinctly
analyzed in Chapter 3 of the UK Government report, “Distributed ledger technology:
beyond block chain” (2016), where it states,
“One fundamental difference between legal code and technical code is the
mechanism by which each influences activity. Legal code is “extrinsic”:
the rules can be broken, but consequences flow from that breach to ensure
compliance. Technical code, in contrast, is “intrinsic”: if its rules are
broken then an error is returned and no activity occurs, so compliance
is ensured through the operation of the code itself. Another characteristic
of software is that a machine will rigidly follow the rules even where that
compliance produces unforeseen or undesirable outcomes. This leads to
some striking differences in the operation of distributed ledger systems
compared with the current financial system.”

Its appearance in the world economy gives disproportionately great power to those individuals and institutions that understand how it does what it does, and are best able to operationalize that understanding. At present, only a very tiny number of people truly grasp how Bitcoin and its underlying technologies work to create and mediate the transmission of value. If cryptocurrencies, blockchains and distributed ledgers1 more generally are to be the crux of the networked, postnational global economy of the remaining century, though, it’s vitally important that we, all of us, grasp at least the basic outlines of how they work and what it is they propose to achieve.
At its core, Bitcoin is a digital medium of exchange that has been designed to act like cash in all the ways we might appreciate, and none of the ways we don’t.

Almost twenty years later, the world of the blockchain appeared and seemed to provide exactly the structure and world that Szabo was describing. Entrepreneurs, programmers, and visionaries took notice, and efforts to combine distributed ledgers and smart contracts blossomed.
By the end of 2016, the best known of these was probably Ethereum, which described itself as “a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.” A number of ambitious efforts were launched on the Ethereum platform, one of which we’ll encounter in the next chapter.
Toppling the Stacks: The Crypto Assault on the Core
At least some efforts involving cryptocurrencies, distributed ledgers, and smart contracts seemed to be motivated by a desire to decentralize activities and information that had previously been concentrated, and to explicitly favor the crowd over the core.

…

But the value of the Bitcoin, as expressed by its exchange rate against currencies like the dollar, fluctuated wildly, rising to a high of over $1,100 in November 2013 before plummeting 77% to less than $250 in January 2015 and then recovering to more than $830 two years later. This volatility made the digital currency interesting for risk-tolerant investors†† but unsuitable as a mainstream means of exchange or store of value.
While the debate about Bitcoin’s ability to ever be a true currency was unfolding, a small group of people began to make a different point: that the truly valuable innovation was not the new digital money, but instead the distributed ledger that it rested on. It was the blockchain that really mattered, not Bitcoins.
Bitcoin’s tumultuous history was evidence that the blockchain could actually work. For years, it functioned as designed: as a completely decentralized, undirected, apparently immutable record of transactions.‡‡ The transactions it was originally intended to record were limited to the mining and exchange of Bitcoins, but why stop there?

…

It is expected that moving elements of the process onto the blockchain can reduce costs for homeowners and other users, while also reducing possibilities for corruption (since the land records, like everything else on the blockchain, will be unalterable).
Why Not Get Smart about Contracts?
As it became apparent that the blockchain could be used to record all kinds of transactions, not just those related to Bitcoins, it also became clear to some that a distributed ledger was the ideal home for digital “smart contracts.” This was a phrase coined in the mid-1990s by Nick Szabo, a computer scientist and legal scholar.## Szabo observed that business contracts, one of the foundations of modern capitalist economies, are similar to computer programs in many ways. Both involve clear definitions (in programs, of variables; in contracts, of the parties involved and their roles), and both specify what will happen under different conditions.

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Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives)
by
David Birch

Number 1 was the printing press, but what caught my attention was the appearance of paper money at number 42. It made me think that in the great sweep of things the replacement of stuff of some kind by records of some kind goes back a lot further – to the grain banks of ancient Babylonia and to the marks made on cuneiform clay tablets – and extends right up to the present day, where there are fascinating discussions going on around the use of cryptography to manage distributed ledgers. Was paper money as big a technological breakthrough as the clay tablet was to ancient Babylon or the blockchain may be to the pervasive Internet?
The interaction between money and the technology of money is more complex and less well understood than you might think, given just how long both have been around. As Jevons wrote, back in Victorian times (Jevons 1884):
It is a misfortune of what may be called the science of monetary technology, that its study is almost of necessity confined to the few officers employed in government mints.

…

, they were easy to store and transport, and they were easily understood by those who couldn’t read (i.e. almost everyone). As a new technology, however, they soon began to exhibit some unforeseen characteristics (in the context of their record-keeping function). During the extended period of use of any technology, creative people come along and find new ways to use the technology in different times and in different cultural contexts. Tally sticks were a form of distributed ledger to record debt, and were soon being used as money.
Tally-ho!
By the time of the reign of Henry II (who died in France in 1189) the exchequer was already a sophisticated and organized department of the king’s court, with an elaborate staff of officers. The use of tallies to enable this operation had an interesting consequence. Since (as is generally the case) the king couldn’t be bothered to wait until taxes fell due, and could not borrow money at interest, he would sell the tallies at a discount.

…

Someone in (say) Bristol who was holding a tally for taxes due in (say) York would have to travel to collect their due payment or find someone else who would, for an appropriate discount, buy the tally. Thus, a market for tallies grew, arbitrating various temporal and spatial preferences by discounting. It is known from recorded instances that officials working in the exchequer helped this market to operate smoothly (Davies 1995b). The distributed ledger technology of the tally had been used to convert a means for deferred payment into a store of value and then into a means of exchange, and the sticks remained in widespread use for hundreds of years.
The Bank of England, being a sensible and conservative institution naturally suspicious of new technologies, continued to use wooden tally sticks until 1826: some 500 years after the invention of double-entry bookkeeping and 400 years after Johannes Gutenberg’s invention of the printing press.

A simple but important point is that, ironically, the end objective of many cybertheft schemes often involves cash, typically withdrawn from an ATM.15 This is sometimes how criminals ultimately remove the funds they have transferred to bank accounts they control, possibly withdrawing currency via a network of people to avoid being conspicuous.
Because the technology is evolving so rapidly, I am hesitant to go into much more detail, beyond saying that phasing out paper currency does not really move the needle much on society’s vulnerability to cybercrime. Some of the present-day obstacles to improving security are really more political than economic. Some innovations in security, such as the potentially disruptive distributed-ledger technology embodied in cryptocurrencies like Bitcoin or Ethereum, may eventually lead to major improvements in financial security, at least at the core of the payment system, as discussed further in chapter 14.
It is particularly hard to see in any of these arguments why large-denomination notes are important. Probably they would be looked on askance after a power outage, earthquake, or other kind of catastrophe.

…

As things currently stand, the Federal Reserve does not directly weigh the welfare of other countries when determining its policy; they count only to the extent that any adverse effects might rebound back on the United States. This is hardly a desirable state of global governance but is not an issue I aim to tackle here.
CHAPTER 14
Digital Currencies and Gold
When I suggest to people that there might be benefits to phasing out paper currency, they almost invariably assume I am advocating a cryptocurrency like Bitcoin and are a bit disappointed to find out otherwise.1 No doubt anyone who looks at distributed-ledger technologies has to be excited about their potential applications in financial services and record keeping in general. For the foreseeable future, however, the best system is one in which a government-issued currency is the unit of account, though of course it will eventually morph into a fully electronic one.
I appreciate that many leaders in the alternative payment space hold the libertarian view that new web-based transaction technologies can free people from the tyranny of government currency and regulation.

…

Plenty of other targets in the transaction ecosystem in theory could be overtaken by digital currencies, even after adjusting to regulation. The huge fees collected by credit card agencies, wire services, and other extant electronic transaction technologies make these media extremely vulnerable to disruptive innovators. Already, digital currencies are far cheaper for transmitting money internationally than wire services, where the charges can often run as much as 10–15% of the amount transmitted. And some applications of distributed-ledger technology offer the promise of cutting out intermediaries in transactions between, say, two banks. This would substantially reduce costs, particularly in international transactions. The approach can also be used to save on legal contracting costs. Some of Bitcoin’s competitors, notably the newer Ethereum platform, aim to offer the possibility of creating secure exchanges for transactions of almost any type.

Any person can digitally “hand” someone a bitcoin, multiple bitcoins, or a fraction of bitcoin, across the world or in the same room. Like handing someone cash, and unlike older digital financial systems, the money doesn’t have to go through an intermediary like a bank or another company. The advantages of using Bitcoin, which I will get to later, are what gives it its value.
Bitcoin is also a distributed ledger, i.e., a record of every transaction and every Bitcoin wallet’s balance (you can think of a wallet as something akin to an account for now). This ledger is also called a blockchain. Every wallet, rather than being stored in a bank’s database, exists on this ledger; each wallet has its own private key and public key. The public key is also called the Bitcoin address. It is between 25 and 36 alphanumeric characters and begins with either a 1 or 3.

…

I won’t even make the argument that cash has been used for criminal activities far more often and for far longer than digital currencies, because the truth is that digital currencies are better suited for certain criminal activities than even cash is. Bitcoin is a useful tool and people will find uses for it, both good and bad. I suspect criminal activities surrounding digital currencies will only get more advanced in the future, but at the same time, so will legitimate investments and innovations.
Bitcoin is many things. It is an online currency, a distributed ledger, and a decentralized network. And yet it may also become the fulfillment of the predictions, desires, and even fears of the early pioneers of the Internet.
1 “Statistics and Facts about Online Shopping.” Statista. June 2014. Accessed May 19, 2015. http://www.statista.com/topics/2477/online-shopping-behavior/.
2 Lewis, Peter H. “Attention Shoppers: Internet Is Open.” Editorial. The New York Times.

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Some currencies failed because the company issuing them merely acted as money transactors themselves, adding an unnecessary middleman instead of eliminating one. Others failed because the issuer abused their power and scammed those who had bought in. Yet others ran afoul of government regulations.6 These issues are avoided with decentralization.
When Satoshi Nakamoto invented the blockchain by combining the distributed ledger and proof-of-work concepts, he fulfilled the long-held vision of a workable, distributed, decentralized currency for the Internet. With it, anyone can transfer virtually any amount for a few cents or less. The blockchain tracks every transaction and its distributed nature ensures that no government agency can shut it down. The details of how this works will be covered in another chapter but the first use case of Bitcoin and the blockchain is the ability to transfer value on the Internet as easily as sending an email and almost as cheaply.

A transaction log can be made tamper-proof by periodically
signing it with a hardware security module, but that does not guarantee that the right
transactions went into the log in the first place.
It would be interesting to use cryptographic tools to prove the integrity of a system in
a way that is robust to a wide range of hardware and software issues, and even poten‐
tially malicious actions. Cryptocurrencies, blockchains, and distributed ledger tech‐
nologies such as Bitcoin, Ethereum, Ripple, Stellar, and various others [71, 72, 73]
have sprung up to explore this area.
I am not qualified to comment on the merits of these technologies as currencies or
mechanisms for agreeing contracts. However, from a data systems point of view they
contain some interesting ideas. Essentially, they are distributed databases, with a data
model and transaction mechanism, in which different replicas can be hosted by
mutually untrusting organizations.

…

Cryptographic auditing and integrity checking often relies on Merkle trees [74],
which are trees of hashes that can be used to efficiently prove that a record appears in
some dataset (and a few other things). Outside of the hype of cryptocurrencies, certif‐
icate transparency is a security technology that relies on Merkle trees to check the val‐
idity of TLS/SSL certificates [75, 76].
532
| Chapter 12: The Future of Data Systems
I could imagine integrity-checking and auditing algorithms, like those of certificate
transparency and distributed ledgers, becoming more widely used in data systems in
general. Some work will be needed to make them equally scalable as systems without
cryptographic auditing, and to keep the performance penalty as low as possible. But I
think this is an interesting area to watch in the future.
Doing the Right Thing
In the final section of this book, I would like to take a step back. Throughout this
book we have examined a wide range of different architectures for data systems, eval‐
uated their pros and cons, and explored techniques for building reliable, scalable, and
maintainable applications.

Historically, protocols have emerged from either research projects or from individuals / small groups simply throwing something out that sticks. In the debate about bitcoin it is critical to understand that bitcoin has the potential to be such a protocol that enables a lot of new innovation to take place.9
Although the exact details of how Bitcoin works are a little more complicated than my short description in this section, a few key ideas come across: digital signatures that facilitate identity; the distributed ledger (the blockchain) that is stored on every client’s device; the crowd collectively clearing each transaction; the need to make clearing transactions challenging to avoid a potential takeover of the blockchain; and the need for an incentive (some equivalent of money, typically called the “coin” that is generated from within the system) to get the crowd interested in performing the challenging work that accompanies verifying transactions.

…

As the venture capitalist Chris Dixon wrote on his blog in 2014, Bitcoin makes activities like international microfinance, markets for computing capacity, incentivized social software, and other micropayments possible—not because we haven’t considered the value of these before, but because the transaction costs were too high.16
There are signs that traditional businesses will embrace many of the new capabilities of decentralized peer-to-peer technologies, much like Facebook actively uses BitTorrent within its privately owned server farms. In spring 2015, NASDAQ announced plans to leverage blockchain technology to support the development of a distributed ledger function for securities trading that will provide enhanced integrity, audit capabilities, governance, and transfer of ownership capabilities. The startup R3CEV has assembled a consortium of 25 of the world’s largest banks that are creating a framework for using blockchain technology in world financial markets.17 The startup Provenance provides a blockchain-based authentication service, where, for example, you can credibly establish the provenance of a high-value item by keeping track of and being able to access every trade associated with its ownership.

pages: 504words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard
by
Fredrik Erixon,
Bjorn Weigel

Asked why, Will Wang Graylin, the CEO of LoopPay, a digital wallet company focusing on the interface between merchants and credit card firms, explained to MIT Technology Review: “Think about the infrastructure and how long it took to create that. It is very difficult to change merchant behavior.”16 No one knows how this market will evolve, but markets, competition, and consumer behavior – not only the technology itself – will determine its future success.
The same is true for another promising technology that can be applied to the payments market: blockchain, or mutual distributed ledger technology (like bitcoin). The market clearly sees a big potential in blockchain technology. It could reduce the costs and risks in transactions, and create a far better system for sharing information in financial markets. Some have billed it as a greater technological leap than the internet for capital markets. Perhaps it will be, but the hype around the technology is premature and the expectation of big market changes is an aspiration.

For companies that are in the business of operating long and complex supply chains, this is transformative. In the near future, similar monitoring systems will also be applied to the movement and tracking of people.
The digital revolution is creating radically new approaches that revolutionize the way in which individuals and institutions engage and collaborate. For example, the blockchain, often described as a “distributed ledger”, is a secure protocol where a network of computers collectively verifies a transaction before it can be recorded and approved. The technology that underpins the blockchain creates trust by enabling people who do not know each other (and thus have no underlying basis for trust) to collaborate without having to go through a neutral central authority – i.e. a custodian or central ledger. In essence, the blockchain is a shared, programmable, cryptographically secure and therefore trusted ledger which no single user controls and which can be inspected by everyone.

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The Production of Money: How to Break the Power of Banks
by
Ann Pettifor

But Radiohead (blockchain) was adopted too quickly by those who then compromised the likeability of the entire Indy genre (cryptocurrency).
It was time consequently to turn to drum and bass (private blockchains). But drum and bass was being cross-polluted by Indy rock enthusiasts (cryptocurrency enthusiasts) so it became time to embrace something totally radical and segregated, i.e. go backwards to an ironic appreciation of Barry Manilow abandoning all refs to modern musical phenomena (Distributed Ledger Technology).
Which puts us roughly at the point where cheesy revivalism should be turning into a general love of the all time provable greats (old school centralised ledger technology, but you know, digitally remastered).
Suffice to say, there is some commentary emerging to suggest we are indeed in a phase transition and what’s cool isn’t the blockchain anymore but rather the defiant acknowledgement that the old operating system – for all its flaws – is built on the right regulatory, legal and trusted foundations after all and just needs some basic tweaking.27
In 2016, $70 million worth of bitcoin was stolen from customer accounts held at Bitfinex.

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The Driver in the Driverless Car: How Our Technology Choices Will Create the Future
by
Vivek Wadhwa,
Alex Salkever

But now Moore’s Law applies, as we have described above, not just to smartphones and PCs but to everything. Change has always been the norm and the one constant; but we have never experienced change like this, at such a pace, or on so many fronts: in energy sources’ move to renewables; in health care’s move to digital health records and designer drugs; in banking, in which a technology called the blockchain distributed ledger system threatens to antiquate financial systems’ opaque procedures.*
It is noteworthy that, Moore’s Law having turned fifty, we are reaching the limits of how much you can shrink a transistor. After all, nothing can be smaller than an atom. But Intel and IBM have both said that they can adhere to the Moore’s Law targets for another five to ten years. So the silicon-based computer chips in our laptops will surely match the power of a human brain in the early 2020s, but Moore’s Law may fizzle out after that.

Fraud is further diminished by the fact that every bitcoin carries its history with it; to try to counterfeit a coin would require counterfeiting a false lineage going back all the way to the beginning of Bitcoin. It would never be accepted by the system, since the millions of copies of the ledger that reside throughout the rest of the Bitcoin network would not have any record of this counterfeit coin or its invented history.
A widely distributed ledger lets everyone know who has what and prevents any individual from barging in with counterfeited property. The major headache that Satoshi Nakamoto conquered, and that every previous cryptocurrency had failed to manage, was the question of how to update that decentralized ledger: How could you make sure that the millions of copies of the master ledger, which are located far and wide throughout the Bitcoin network, are all the same, all accurate, all up to date, without anyone cheating?